of African Americans expect occasional market corrections vs. 95% of white investors. Also, 52% of African Americans agree with the statement: “The recent stock market volatility will have little impact on your ability to reach your long-term financial goals.” [On the other hand,] 68% of the white counterparts agree with that statement. We have a lower tolerance for volatility and risk. The main reasons are the lack of trust, knowledge, and exposure, as well as other cultural issues.
The good news is that we are increasingly active in the stock market. We still haven’t caught up with the mainstream population but 69% of African Americans owned stocks, in our 2001 survey, vs. 57% in 1998, and 64% in 1999. Ownership among whites, during the same period, remained flat, at about 80%. So, we’re closing the gap.
MORRIS: We’re talking about two [investor] populations within the black community. There are about 10% to 15% of black Americans who control 70% to 80% of black wealth. Then, there is the 75% to 80% who control the other 20% to 30%. So, today’s African American investors have a greater concern about market volatility because they know if the dominant culture catches a cold, then we catch pneumonia. Wealth building is new to us. We need to be educated about how we manage it.
CHARLES PAYNE: A lot of people — black people particularly — who just came to the market, came in at the wrong time. It’s really important that they become students of the market, and understand that they have got to wait this period out. One of the unfortunate things is that a lot of stocks are not going to come back. It’s going to be a real bitter pill [to swallow].
B.E.: What strategies should investors employ to deal with continued volatility?
GIBBS: I’m a proponent of dollar-cost averaging [c
ommitting to invest a specific dollar amount each month], which works very, very well in extremely volatile markets. It keeps you focused on a constant stream in investments. You get more shares the lower the price and it effectively lowers your break-even price. [Dollar-cost averaging is] a very simple tool [for investors] to use to invest in the market and benefit from volatility.
EPPERSON: One investment tool that seems to be something that a lot of folks are getting into is 529 state-sponsored college savings plans. Many of them offer you a state tax deduction so you’re saving for your child’s college education [while] investing in the market. Again, someone else is investing this money for you. You’re not picking stocks yourself, but you know that money is in there no matter what happens to the market. You’re riding out the volatility.
B.E.: Should investors develop a sell strategy as well as a buy strategy in this environment?
PAYNE: I’m a proponent of using stocks to protect profits. There isn’t a person around who bought stocks in the last three years who didn’t buy a stock at $30 that went to $100, and now it’s $2 a share. If they